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Data Driven Detroit (D3) provides accessible, high-quality information and analysis to drive decision-making that strengthens communities in Southeast Michigan.

Tax Foreclosure : Now a Regional Issue

By Rob Linn – GIS Analyst at D3

Last month, in advance of the tax foreclosure auction in Wayne County, Data Driven Detroit (D3) worked to equip Detroit’s community-based organizations and residents with data to make informed decisions.  To encourage residents to participate in the auction and to facilitate residents to make neighborhood-specific plans in anticipation of the auction, D3 launched a new free online tool. While tax foreclosure is increasing throughout the Southeast Michigan region, Detroit remains the most affected community.  In Detroit, the auction included more than 12,000 properties with a total area larger than Hamtramck, and risked displacing an estimated 13,000 residents.  While some properties and neighborhoods will benefit from tax foreclosure, the process often proves very challenging for residents and neighborhoods.  Clearly, resident engagement in the tax foreclosure process – as buyers, voters, community decision-makers, and neighbors – is needed to drive a more positive outcome after the auction.

Background: From Delinquency to Forfeiture to Foreclosure

This fall, Detroit, like nearly every community across Michigan, began the difficult and painful process of reconciling old property tax debts through auctions of tax-foreclosed properties.  In accordance with Michigan law – Public Act (PA) 123 of 1999[1] – Michigan’s counties must resolve tax debts more than two years old by holding two or more public auctions of tax-foreclosed properties.   There are 2 types of foreclosures: mortgage and tax. Mortgage foreclosure is used to resolve delinquent mortgages (bank loans for a house) while tax foreclosure is used to resolve delinquent property taxes.  Before properties may undergo tax foreclosure, however, they must navigate a complex system involving several steps: Delinquency – the initial step, when interest begins accruing because of non-payment; forfeiture – the middle step, when interest increases to a significant level and property transfers are made more difficult; and foreclosure, when the county takes the title to the tax delinquent property. 

A better understanding of the 3 step foreclosure process will help the region to better grasp the scope of the current problem, which has been several years in the process. Under PA 123, properties in Michigan enter the first step, tax delinquency, after the first year of non-payment of taxes.  At the onset of delinquency, local county treasurers notify property owners and begin assessing a 4% fee and 12% interest on the arrears.  At this point, a property owner may redeem the property by paying all delinquent taxes, interest, and fees.  If a property’s taxes remain delinquent for another year, the property becomes subject to the second step, tax forfeiture.  At the start of tax forfeiture, property owners are notified again of their continued delinquency by the county treasurer.  At this point, the county treasurer also retroactively increases the interest on backed taxes to 18% and files a notice of forfeiture with the county register of deeds, hindering sales of the property.  If the taxes remain unpaid, the property becomes legally ineligible for redemption, and eligible for tax foreclosure on March 31 in the third year of tax delinquency.  On April 1, the local county treasurer is no longer statutorily required to allow residents to redeem their forfeited properties, and may take title to all forfeited properties through the tax foreclosure process.  In practice, however, most county treasurers allow a grace period for property-owners to pay their taxes beyond March 31, and often don’t necessarily foreclose on properties in the first foreclosable year.   

While Michigan counties must offer all tax-foreclosed properties for auction at least twice, the schedules vary widely between counties.   Most counties are currently in the midst of holding their second and final auction of the year.  In the second auction, minimum bids are often quite low, usually a few hundred dollars per property.  In Wayne County, the final auction lasted 3 days, beginning  on October 21st.[2]  In Macomb County, the final auction was held on October 25, [3] while Washtenaw county ran its auction from October 14 through October 18,[4] and Oakland County held its final auction on October 11.[5]

Tax Foreclosure: A Regional Problem

Since the current tax foreclosure system took effect in 2001, the state’s cities that have been struggling, including Detroit, Flint, Pontiac and Saginaw, have faced growing waves of tax foreclosures each year.  More recently, however, tax foreclosures have begun spreading further throughout the region, with many communities facing the problem on a significant scale for the first time this year.  Communities such as Novi Township, Ypsilanti Township, Royal Oak Township, and Hazel Park are now also local centers of tax foreclosure, with rates similar to those in Detroit in 2007 or 2008.  As the map suggests, tax foreclosures are most concentrated in and around Detroit and its inner-ring suburbs, although more distant areas like Eastern Washtenaw County and central Macomb County have pockets of significant tax foreclosure activity.

 

Tax Foreclosure in Detroit

Although many Southeast Michigan communities are beset by record numbers of tax foreclosures, no community faces the problem on nearly the same scale as Detroit.  In the October auction by the Wayne County Treasurer, the treasurer offered up unprecedented quantities of property in the City of Detroit for $500 minimum bids.  In total, the 12,194 properties that were listed for sale in Detroit span 1,309.2 acres – an area larger than the City of Hamtramck – creating the opportunity for the largest private land transaction – by area – in the city in nearly a century.  While the overwhelming majority of tax foreclosed properties are residential structures, hundreds of vacant lots and commercial structures are for sale, as well.  In addition to significant ownership and land use ramifications, however, the auction had the potential to have unparalleled personal impacts.  According to 2010 census-based Data Driven Detroit estimates, the 5,103 occupied residential properties listed for sale are home to more than 13,300 people. 


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Just as many inner-ring suburban communities are facing this problem on a significant scale for the first time this year, many of Detroit’s strongest neighborhoods are soon to become familiar with the challenges of tax foreclosure.  Neighborhoods including Palmer Woods, Indian Village, North Rosedale, and East English Village are facing record-setting levels – albeit comparatively low to the city as a whole – levels of tax foreclosure this year.   

Tax Foreclosure: Challenges and Opportunities

Numerous studies, by practitioners and scholars alike, have shown that escalating foreclosures can spur myriad problems for local municipalities by eroding tax bases,[6] flooding already-saturated real estate markets[7], evicting long-time residents,[8] encouraging land speculation,[9] and blighting neighborhoods.[10]  Tax foreclosure is certainly a damaging process for many properties, but its negative effects are not always universal.  In many areas of Detroit and Flint, there are examples of residents using properties bought in tax foreclosure auctions to affect positive change in their neighborhoods, showcasing their own creativity while sparking neighbors’ excitement.  In Detroit, for example, some auctioned properties have become inexpensive homes to new art galleries, residences, stores, churches, gardens, garages, patios and basketball courts.[11] 

A tax-foreclosed lot became a basketball court on Detroit’s eastside in 2006.

Despite the considerable risks, the auctions can offer unique opportunities to residents.  Given the well-documented barriers to acquiring city-owned property,[12] these auctions offer residents a comparably straightforward, inexpensive and efficient method to begin taking ownership of vacant spaces in their neighborhoods.  Though certainly not the ideal path to change, it is possible for tax foreclosure to provide an opportunity to spark positive change.  Through tax foreclosure, renters can become owner-occupants, neighbors can become landlords, and vacant lots can become gardens.  To spur this change, however, local residents must participate in the tax foreclosure conversation and auction.  Detroit is already a hotbed of creative uses for vacant properties, including such model projects as the recent Tashmoo Biergarten [13] or the now-famous Georgia Street Community Collective.[14]  The tax foreclosure auction can allow residents to take ownership – both figuratively and literally – of their neighborhoods, and make positive, creative improvements.

For the auction to realize this positive potential, however, residents must be more involved.  Between 2002 and 2010, for example, 33.5% of purchasers were city-residents buying single properties.  However, these residents accounted for only 6.3% of properties purchased at auction.  During the same period, 46.4% of property sold at auction was purchased by only 2.5% of purchasers.  The outcomes of properties purchased by these large-scale purchasers tend not to be positive.  Of the properties purchased by these bidders since 2002 that were eligible for tax foreclosure by 2011, 43.5% subsequently re-entered tax foreclosure.  In the same vein, nearly a third – 31.3% – of the properties purchased by these purchasers subsequently received one or more City of Detroit blight violations.  These rates are more than twice as high as those for local residents who purchased single properties.  Clearly, property-by-property auction outcomes are negative in most instances, especially when purchased by wholesale purchasers. 

As tax foreclosures and auctions become challenges for an increasing number of communities throughout Southeast Michigan, statewide support may increase for identifying another means of addressing tax-foreclosed property.  In the interim, however, Detroiters should become more involved in the tax foreclosure process to improve outcomes and find new uses for vacant spaces.  With Detroit Tax Foreclosures: Interactive guide to city properties listed in the Wayne County Auction, Data Driven Detroit seeks to help residents and community-based organizations make informed decisions about tax-foreclosed property and facilitate their participation. 

Download the Map Packet


[1] http://closup.umich.edu/files/closup-wp-10-disposition-public-land.pdf

[2] http://www.freep.com/article/20110925/COL20/109250330/Sylvia-Rector-Tashmoo-Biergarten-ready-pop-up-Detroit-s-West-Village

[3] http://georgiastreetgarden.blogspot.com/

[4] http://www.jstor.org/pss/3159470

[5] http://www.bostonfed.org/commdev/pcadp/2008/pcadp0801.pdf

[6] http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/aglr2&div=6&id=&page=

[7] http://detnews.com/article/20110203/METRO01/102030395/Private-landowners-complicate-reshaping-of-Detroit

[8] http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/pittax6&div=10&id=&page=

[9] http://sitemaker.umich.edu/urpoutreachreports/all_reports&mode=single&recordID=0000c0a8de10000007d544040000012fb0304a03e9f80be7&nextMode=list

[10]http://www.legislature.mi.gov/%28S%284rupv5550j3pxuai52lxla45%29%29/mileg.aspx?page=getobject&objectname=1999-hb-4489&userid=

[11] http://www.waynecounty.com/5143.htm

[12] http://www.macombcountymi.gov/treasurer/pdf/10-25-11%20REVISED%20Rules%20and%20Regulations.pdf

[13] http://www.ewashtenaw.org/government/treasurer

[14] http://www.oakgov.com/treasurer/del_prop/


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